A sales manager’s guide to setting sales quotas

Finding the right sales quotas for your team is more than just mandating an ambitious number that keeps your team motivated. In fact, aggressive sales quotas can backfire and damage your company.

Wells Fargo was ultimately ordered to pay $185 million in fines when it was discovered that 2 million banking and credit card accounts were opened in customers’ names without their knowledge over a 4-year period. The responsible employees participating in the fraud were fired, but they didn’t go quietly. They amplified the public fall-out and filed a class-action lawsuit claiming that Wells Fargo’s quotas were grossly unrealistic and that staff was demoted for not meeting goals. Meanwhile, employees who actively participated in the fraudulent practices were rewarded.

The Wells Fargo case is an extreme example of what can happen when aggressive sales quotas and goals are set, to the detriment of both employees and clients. But the stress and psychological effects of imposing quotas on your employees can also damage your business without fraud ever being part of the equation. Finding realistic goals that still keep your sales teams performing is difficult, but it can be done – and done right, it will motivate your sales teams. Here’s an overview of how to set sales quotas that work.

Set sales quotas based on data

Setting realistic and successful sales goals starts with studying your data and metrics. Look for trends; when were quotas easily met, and when did your staff falter? Over-the-top goals that no one can meet month after month are ineffective, and a good way to drive your sales team away. But setting goals that are too low isn’t much of a motivator either, and won’t inspire top performers.

Look at previous data to see the average number of sales per month and who typically hit those goals. Start by pulling data over a year-long period to see the overall historical performance of both your team and individual salespeople. This can help you avoid setting inappropriate quotas during abnormally successful months or ones that fell flat.

Who met the quotas and who didn’t? Was it only the top performers in your company, or a mix of sales representatives? Only focusing on the superstar salesperson will ultimately demotivate team members who feel they can never compete. Meanwhile, lowering the bar to meet the worst-performing sales rep isn’t healthy for your staff, either. Don’t be afraid to push your team outside of their comfort zone.

Set goals as a team

Give your team the chance to take ownership of their positions by working together. Once you’re armed with data from a wide range of metrics and sales history, work out sales goals as a team. But company goal setting isn’t just about improving employee morale and teamwork: your sales reps will likely have additional insights on what’s realistic and what truly motivates them. They may have incredible ideas on how different sales seasons impact their success and how to incentivize the entire team.

Something else can happen when your team is involved in sales quota decision-making goals: they’ll hold themselves more accountable when they’re actively involved in the process. Your team no longer has the opportunity to complain about the quota since they were part of the process.

Use bonuses as secondary incentives

Money and bonuses aren’t the only motivators for sales teams. In fact, big bonuses attached to every success could backfire and demotivate your team. They may decide there’s no way they can hit that goal so they won’t try as hard. Or they may only work as hard as possible when the bonus is attractive enough.

One way to combat the issue of bonuses is to ask salespeople what kind of incentives they want. This can help you motivate your team without setting unrealistic expectations for success. Set expectations on a reward budget, as well as what the objective and timeframe should be to earn the reward. That way everyone is involved in the process, and the pressure is set appropriately. You could also consider offering low or no-cost rewards such as an extra day off or comp time for their hard work.

Set a base quota

Setting up your team for success starts with creating a realistic base quota for your team. But some sales managers decide to set the quota based on the highest-ever month of sales, regardless of the context. For example, closing a few new clients could coincide with a surprise referral and some old clients renewing. This creates a sales spike that your team can’t realistically duplicate every month because the conditions are outside of their control.

Raising the quota every time a sales representative has their best month ever is also bad for employee morale. It will simply deter your team from pushing themselves every month, and instead, they’ll settle on a number that feels more realistic to them. In other words, they will purposefully underperform to ensure they won’t fail next month.

Instead of setting an overambitious quota, consider a simple base quota instead. Choosing a minimum number of sales you will accept as a manager lets your team know your minimum expectations to work from. It’s also okay to let them know you expect them to exceed these expectations. Create a culture of motivation around that goal by holding meetings and reminding your team that you expect them to outperform those basic goals every month.

Rely on a commission-based structure

A simple commission-only sales structure could help propel your team forward to earn the amount of money they want. However, setting caps on commissions can bring their productivity to a screeching halt. There’s little reason for them to keep working and performing at their highest level without the incentive to earn that commission.

It’s also possible that removing commission caps altogether can improve your bottom line and increase your sales team’s motivation to perform. There are even studies to back this up. Research published in the Harvard Business Journal found that removing sales commission caps (or setting them as high as possible) increased sales and overall financial health for the company. “Companies sell more when they eliminate thresholds at which salespeople’s marginal incentives are reduced,” writes author Doug Chung.

The research also shows that simplifying the commission structure and maintaining transparency are motivators. Make sure your sales team understands exactly how their commission structure works, and how many sales they’ll need to meet both company and their own personal goals.

Don’t beat down your sales teams

There’s no reason to beat down or punish your sales teams when you can simply let them do it themselves. Relying on a commission-focused model means those representatives won’t get paid without making the sales. You may discover that the salesperson who couldn’t seem to manage even a few sales calls and meetings jumps into action when their income is on the line.

Employee morale plummets when they’re subjected to ongoing lectures and tense meetings on why they’re not performing. Your employee retention rate is also on the line when it comes to office negativity. Beating down your sales teams with reprimands, creating unrealistic commission structures and bonuses, and calling them out in public for underperforming will ultimately just drive them to quit. And the costs of recruiting, hiring, and training new team members can drag down your profits.

Use intrinsic motivation

Although it’s certainly a major part of the sales quota equation, money alone doesn’t motivate sales teams. They also need an injection of intrinsic motivation to keep their level of performance high. Your sales team can find their internal drive when you publicly praise their performance and give credit where it’s due.

Other ideas can be as cost-effective as they are impactful. Consider rewards like lunch with the boss to get in more face time or an extra day off. The choice of a new client or territory can also boost motivation for top performers eager to get ahead.

Assigning senior sales personnel to mentor junior ones can also help motivate teams. Mentoring each other through the process can create a sense of job ownership and pride, and can help less experienced team members get up and running in their careers quickly. Senior staff members might also learn something from younger staff, like leveraging social media to generate more leads and close more sales.

Promote job ownership

To keep teams motivated enough to hit their sales quotas, they need to feel a sense of ownership in their role and participation in the company. One way to do this is by regularly keeping in touch with your staff and having open office hours when they can speak with you about their goals and struggles.

You can also set aside time for monthly roundtable meetings, and make communication and transparency part of the core culture of your business. At the end of the day, promoting job ownership within your company can ultimately help your staff take more accountability for their role and success.

Josh Gillespie

Josh Gillespie is a senior product specialist at PandaDoc. When he's not closing large deals or working on complex SaaS implementations, you'll find him either on the basketball court or rocking the salsa dance floor with his wife.